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Summary
- The BoE’s economic forecast for this year likely to be downgraded.
- Markets are watching out for any further financial stimulus from the central bank in a bid to support the economy.
While the Monetary Policy Committee of Bank of England (BoE) is expected to leave the bank rate unchanged in its latest announcement on Thursday, it is expected to provide an update on its negative rate project. This is the first time that the MPC is meeting this year. Analysts have predicted that the interest rate will be unchanged at 0.1 per cent despite ongoing speculations of exploring the below-zero levels.
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Economists have explained that it is reasonable to expect higher stimulus support, given the surge in Covid-19 cases and a new lockdown in place. Also, the BoE has not suggested any inclination towards extra stimulus till now. The MPC announcements are expected to come out at 12 PM on Thursday, 4 February. BoE’s governor Andrew Bailey will address a press conference at 1 PM.
The central bank has already announced an additional bond purchase support worth £ 150 billion for this year. In fact, there is a possibility that any more fiscal stimulus would come in the upcoming budget to be announced on 3 March by British exchequer chancellor Rishi Sunak.
George Buckley, economist at Nomura, has termed the February meeting as interesting as the central bank might speak about including negative interest rates in its toolbox.
Background work in process
Last year, the BoE initiated talks regarding the possibility of taking the rates below zero and is working with other British banks to make sure that they are ready if such a transition is actually made. Earlier, Sam Woods, the deputy governor of the Bank, had said that the central bank would be publishing an update of the project along with the monetary policy report on Thursday.
Buckley said that the bank could very well announce that negative rates can be used if needed be. Nonetheless, it goes without saying that using this tool does bring its risks along with it. In the entire history of the central bank, which was founded way back in 1694, the bank rates have never gone into the negative territory.
Economic forecast might be revised
The quarterly monetary policy report to be released by the MPC will showcase the economic forecasts. Experts have said that while the central bank could up its forecast for last year, but that for 2021 might be downgraded. In November 2020, the BoE had projected the UK GDP to grow at 7.25 per cent.
Experts predicted that while the ongoing vaccine rollout programme does give hopes of an economic turnaround especially in the second half of the year, the strength of the rebound depends closely on the progress of the inoculation plan. The BoE is likely to consider these intricacies while revising its forecasts.
